Bank of Mum and Dad: The pitfalls of giving money to your kids
Parents are increasingly dipping into their own savings to help their adult children with daily living costs - but that is only entrenching the wealth gap.
It wasn’t part of their plan a few years out from retirement, but a while back, Angela and Alexander O’Donnell walked into their bank and remortgaged their family home. They felt they had no choice - their daughter Natalie was facing the prospect of losing her home in Kaiapoi and having to move her two children into a rental after her marriage broke up.
Natalie wanted to buy her ex out, but she couldn't get a mortgage. So her parents mortgaged their own home instead, lending her the money they borrowed from the bank. "How could I enjoy my life when my daughter was struggling? I just couldn't do that," Angela O'Donnell says.
The O’Donnells - Angela and Alexander - are part of an invisible yet incredibly popular institution known as “the Bank of Mum and Dad”. As their offspring struggle to manage their daily living costs, more and more Kiwi parents are stepping in to help: paying bills, providing allowances, stumping up deposits, and in some cases, providing entire houses.
A recent Consumer NZ survey estimated that the Bank of Mum and Dad has doled out $22.6 billion in home loans in recent years, which, if true, would make it the fifth-largest financial lender in this country - more than TSB and Kiwibank combined.
In Auckland, 58 per cent of parents who took part in the survey helped their children to buy a property, and the amounts they gave were $20,000 more than the national average. For one in 10 parents, their contribution put them under moderate to serious financial strain.
The O'Donnells aren't cash-strapped but they're not rolling in money, either. They had anticipated being mortgage-free into their retirement.
"We didn't think twice about mortgaging our place. This is what parents do for their children. Our grandchildren are at school and we didn't want them to have to move around," Angela O'Donnell says.
Although she has never given her daughters - Natalie and Danielle, now 37 - money for cars or holidays, she did give them $100,000 each towards a house deposit 10 years ago, after she inherited money from her mother.
She points out that it is normal for parents in Germany - where she grew up and lived until the early 1980s - to financially support their adult children if they need it.